The pandemic has claimed the lives of more than 9,000 people worldwide, forcing a seismic shift in the way business and public matters are being handled.
The Wall Street Journal reported that stocks fell more than 7% on March 16, leaving the Dow with its worst day since 2008.
Massive fluctuations in the stock market have put worry into the minds of many on whether or not the same will happen to the housing market. Time will only tell, yet the coronavirus has already had a significant impact on real estate ahead of the spring homebuying season.
1. COVID-19 is changing the way we do business
The business of real estate is built on trust and personal relationships, and for buyers and sellers approaching the most significant transaction of their lives, curbing facetime with an agent is a lot to ask. Although handshakes may be on hold, many realtors are forced to adjust the way they conduct their day-to-day operations.
Brokerages around the country are adapting by conducting virtual showings and open houses and, in some cases, are completing transactions online.
The National Association of Realtors (NAR) reported earlier this month that the coronavirus has had minimal effect on seller and buyer behavior. Over 80% of homeowners surveyed reported having no change in interest to pull their homes off of the market. Additionally, buyers’ attention remains steady on average, despite the pandemic. As the financial and social impacts of COVID-19 continue to develop, shifts in employment and financial outlook may change buyer behavior.
2. The coronavirus and low mortgage rates
On March 15, the Federal Reserve announced another emergency interest rate cut that brought the primary credit rate to .25%. This cut comes amid already rock-bottom mortgage rates, which have been dipping since the beginning of the outbreak in late 2019.
As investors with money in stocks and bonds experience a shaky market, home buyers and current homeowners are getting good news. Despite an uptick in rates in mid-March, mortgage rates have fallen to some of their lowest levels since 2013 with chances of falling even further.
According to a recent report by Homesnap, owning property is more affordable than renting in almost any location in the country. On average, American homeowners will spend 25.1% of their income on housing, while renters spend an average of 37.9% of their income on monthly housing payments. Many buyers are taking advantage of these low rates.
Additionally, the number of homeowners refinancing their existing mortgages has increased dramatically — creating the possibility of a more competitive spring market. According to Black Knight, a mortgage data and analytics company, potential home refinance candidates jumped from fewer than 8 million in mid-January to as many as 11.3 million by early February, a 40% increase in just four weeks. Owners who refinance may wait to sell, which means less inventory on the market.
3. Foreign investors find safe haven in US real estate
Chinese investors dominate international activity in the U.S. residential market, though the effect of the coronavirus on this trend remains to be seen. In 2019, China accounted for more than 17% of the foreign volume market share of U.S. residential real estate purchases, and although COVID-19 could have a significant impact on investor activity in general, it may have a positive impact on real estate investments, since they tend to be less volatile than the stock market.
When the stock market falters, investors tend to favor hard assets such as real estate. It’s unclear how hard the coronavirus will continue to hit the U.S. economically, but residential real estate could remain a safe haven for long-term investors. Real estate transactions of rental properties could see a spike in activity as global investors look for less volatile investment options for the time being.
State of the market and where it’s headed
While the full economic impact of COVID-19 is unknown, you can make informed real estate choices based on what we know now:
- COVID-19 has surpassed 200,000 confirmed cases — a number that will continue to rise quickly
- The residential real estate market remains fairly unchanged, but economic shifts could impact the housing market in the future
- Investors and homebuyers can take advantage of lowered interest rates, and existing homeowners could consider a refinance
How to approach the spring homebuying season
Overall, home prices are still healthy, and current market conditions will dictate whether or not prices will rise, fall or stay level.
While our needs may change over the decades of our lives, the need for safe housing remains. Couples starting families are often looking to buy starter homes, and as a family grows, a bigger house may be in order. When kids go to college, empty nesters may downgrade their home size to adjust to their new stage of life.
If you are in the market to buy or sell real estate, current low rates offer a prime opportunity for buyers to lock in low monthly costs. Homeowners have the ability to capitalize on better refinancing terms with their existing mortgage. In times of crisis, investors turn to U.S. real estate, and this time should be no different.
Harry R. Bennett III is a writer for MoneyGeek and a real estate agent in New York City.